Australia - All posts tagged Australia

The iron ore production cut announced by Brazilian mining giant Vale (VALE) is not the incremental positive for the iron ore market that traders might have thought, and the stock is down nearly 4% this morning after rocketing nearly 9% higher Monday.

Bloomberg News

Iron ore in Western Australia.

Mining peers Rio Tinto (RIO) and BHP Billiton (BHP) are each down nearly 1% in early trading. RBC Capital Markets analysts spoke with the company Monday after it announced the production curtailment and Analysts Fraser Phillips, Steve Bristo, Thomas Klein and Wen Tian write:

“We now believe the announcement is not as large an incremental positive for the iron ore market as we initially thought. The company’s total supply guidance for 2015 is unchanged at 340 million tons, and there is no change to future supply guidance. … The curtailment of production puts the company back in line to meet its original 2015 guidance of 340 million, which is unchanged.

Curtailment represents approximately 2% of the iron ore market: However, with 2015 guidance unchanged, there is no impact on our 2015 surplus. In addition, it remains to be seen how long the curtailment will be in place and if it will impact Vale’s supply guidance for 2016 and beyond.”

“India’s power plants may need to import coal to make up 38 million metric tons of projected coal production. That’s 88% of the excess capacity in seaborne thermal coal this year, according to estimates by Wood Mackenzie. Steel mills would need an extra 14 million tons of coking coal, which should cover the oversupply in that market.”

There’s a popular Asia-Pacific exchange-traded fund that manages to avoid Japan, a country whose moribund stock market sends many investors running. But if you think that leaves the fund as a good way to sample Asia, just make sure you really love Australia.

At last check, about 63% of the $3.4 billion iShares MSCI Pacific ex-Japan Index Fund (EPP) tracks the stock market down under, according to XTF.com. Ned Davis Research’s Neil Leeson is out this week arguing that Australian stocks’ prospects don’t look so hot.

If you like the ETF format and you’re interested in more of a blend, there are better options. One is the iShares MSCI All Country Asia ex Japan Index Fund (AAXJ). About three quarters of the portfolio is invested in China, South Korea, Taiwan, Hong Kong and India. SPDR S&P Emerging Asia Pacific ETF (GMF) is another option. The portfolio is more than half invested in China and Taiwan. India makes up 15%.

It turns out to be surprisingly tricky to tap just Asia’s emerging markets, and only emerging markets, in a widely owned, well-traded ETF. Specialty ETF providers have a few options that come close. The WisdomTree Asia-Pacific ex-Japan Fund (AXJL) is close but for the nearly quarter of the portfolio invested in Australia. First Trust ISE Chindia Index Fund (FNI) pretty much gets there, but, as the name suggests, it heavily favors two countries.

There’s also the problem of large-cap correlation in emerging markets: Shares in the big, global conglomerate based in Hong Kong or Seoul will probably behave much like their brethren in London or New York. It’s tough to argue that Samsung Electronics (005930KS) gives you “emerging markets.”

You could turn to smallcaps to avoid this, but again, it’s tough to tap “pure” Asian emerging markets. iShares MSCI Emerging Markets Small Cap Index Fund (EEMS) is not bad for that purpose, but it’s overlooked, with just $9 million in AUM. Also worth a look: The more widely owned WisdomTree Emerging Markets SmallCap Dividend Fund (DGS), but that one’s about 60% or so in Asia.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.